There Is No 'True' Price For Anything

from the markets-adjust dept

There's an odd little NY Times article that reader Jake Rome pointed out to us, which seems like a totally random attack on Amazon based on the fact that some publishers don't like the fact that Amazon prices things based on this silly concept known as "what the data suggests will be the most appropriate price," rather than what these publishers insist is the only way to price things: "what publishers say a book's 'true price'" is and "how amazingly special and valuable books are." One of those ways of pricing is based on reality and economics, the other is based on fantasy and ignorance. Guess which one is which.

One consequence of this shift is that soon no one will know what a book’s “real” price is.

No one ever knew what a book's "real price" was, because there's no such thing as a "real price." There's whatever price a willing buyer and a willing seller agree on, and that's the "real price" for that book.

Price will be determined by demand and perhaps by whim.

Supply and demand have always been the key setters of price, so why is that so surprising or troubling here? And I'm not sure where the "whim" comes in, because that's actually much more how book pricing was done before. Amazon appears to be doing the exact opposite of that: it prices things based on data, rather than on a whim.

“And I don’t like the inconsistency of the pricing, either — the raising, the lowering — because it sends a confusing message that good books are worth less, and because it encourages buying based on something other than the quality of the book. It’s just an unhealthy business if people are buying a thing mostly because of its price, not its quality. That’s how you sell widgets, not books.”

Someone doesn't seem to understand the difference between price and value -- nor do they understand price elasticity. But, perhaps that's because they don't understand basic economics, as evidenced by their dismissive concept that books are not "widgets." Price and value are not the same thing. Just because a price is low, it does not mean the value is low. In fact, very cheap things can be incredibly valuable. And, the fact that more people buy stuff when it's cheaper, well, until you change basic human nature, that's never going to change. Pretending otherwise is like pretending you can stop the tide from coming in.

“Discounting, and especially inconsistent or shifting discounting, really messes with a publisher’s ability to price a book fairly and accurately to its cost,” he added. “You have to consider the fact that whatever price you put on the cover, Amazon is going to reduce it by as much as half — unless they don’t — or they may, but only for a while. But in short they’re going to make your book look like a thing with a cost lower than the one you placed on it.

"Fairly" is what the market will bear, and it appears that Amazon knows a lot more about that than this publisher. "Accurately"? What does that even mean? The book is always priced "accurately" because whatever price is put on it is "accurate." The publisher sets the basic cost, and what the retailer sells it at is a separate issue.

“So do you raise the price, knowing they’re going to lower it, so that the price will then appear closer to what you need it to be? But if you do that then you’re screwing the more honest retailers who can’t discount. And we’ve gotten a long way from recognition of the fact that publishers have costs in making books, and that should have something to do with the price.”

This whole discussion seems to suggest this publisher, Dennis Loy Johnson, of Melville House, doesn't seem to recognize the fundamentals of the situation here. He's the publisher: he prices the books at what's the best price for his publishing house to maximize its revenue overall, and what retailers then price the book at is not a huge concern, because he's already set his own price. If Amazon wants to sell the books as a loss leader, so be it. What difference does that make unless you have some faulty notion in your head that books are so stupendously valuable that they "must" be priced higher than most people want to pay?

Reader Comments

Amazon is a Monster. But..

Market is market. And book prices are totally out of the roof, with no basis in reality.

The only market where prices seem to reflect some reality is actually computer games. Take a look at steam or gog.com, and you'll see how much the market is working. And the prices are NOT what every publisher think they should be. But so is the amount of goods sold -- higher than anyone would expect.

And I'm a typical "victim" of that market -- I've got more games than I ever might play. Still, they were cheap... The same could be true for the book or movie market IF they would price them right. I simply would buy more than I could ever read or watch.

You have to consider the fact that whatever price you put on the cover, Amazon is going to reduce it by as much as half — unless they don’t — or they may, but only for a while.

This one sentence tells you everything you need to know. If you're focusing purely on Amazon to set your prices by definition you are ignoring the consumer. It's hardly shocking you don't know what he's willing to pay.

Re:

I can only assume from your comment that you think everyone pays the same price for a given make/model/year of car and that the price is the sticker price.

The price on the book 'sticker' is the list price (just like the car sticker). This may come as a shock but people frequently buy things at less than list price. It even happens to books, several bookstores in my area have a bargain bin. I haven't heard a single publisher make this level of fuss about bargain bins in bookstores.

So what is the issue? The issue appears (at least to me) to be that publishers dislike Amazon putting books in the bargain bin on the day they come out. They REALLY dislike Amazon putting best sellers in the bargain bin. However, they do not seem to have an issue if a physical bookstore like Barnes & Noble puts the same book in a bargain bin a year or two after it comes out. Why? In either case the vendor (Amazon or B&N) paid the wholesale price for the book and the publisher collected their 'designed' profit margin, the company taking the beating on the price reduction is the vendor not the publisher.

Best answer I've got/seen is that this is an emotional issue with the publishers and not a business issue. I've seen deals cut with clearinghouses/publishers where books are bought at wholesale and given away (effectively sold for $0). The seller thought that was a GREAT idea, they got paid and the book went in circulation providing 'marketing'. So I guess selling it for $0 is a good idea but selling it for $5 is a horrible idea. Huh?

It does sound to me like they are still confusing price with value. Price is determined by supply and demand, and what the market is willing to pay. Incidentally, how is digital supply anything different to infinite supply? Digital should be priced accordingly, but that is another issue.

Value is completely different and is next to impossible to measure with any degree of accuracy as it is a personal thing. I have bought many e-books priced at 99p (and even free on Amazon) but the value I place on my enjoyment I got from these books is...well I cannot really put a figure on that.

"And we’ve gotten a long way from recognition of the fact that publishers have costs in making books, and that should have something to do with the price.”

The publisher's marginal cost for publishing an ebook is far, far less than the publisher's marginal cost for publishing a hardcover book. Ebook sales are going up, so the publisher's total costs for a print run should be going proportionately down. If book pricing had anything to do with the publisher's costs, we should see either hardcover books getting cheaper, or ebooks being priced considerably less than hardcover books. We have not seen either of these things happen, which is why the big publishers are currently in trouble with the DOJ.

Re: Re:

They do. The total cost would be the initial cost of writing, typesetting, editing, etc., and then the marginal cost of printing, distribution, etc. If the latter goes down, so does the total, even if the initial cost remains fixed. Customers recognise this, which is why people are unhappy when they're being charged hardcover prices for ebooks that clearly lack the high marginal costs of that format.

First sale price

The other thing they haven't mentioned, is how much the publisher increases prices based on potential resales of the same book. With ebooks, there's no second sale ... yet, so we should not be expecting those 1st sale prices to be as high.

That's something Microsoft could have done to sell the controlled used game problem on the original XBox One design. A disk sale could have been $60 - trade it all you want. Or buy it digitally for $25 and then, like current digital goods, no returns or exchanges.

Why does he care?

So, correct me if I'm wrong but, don't the publishers generally sell books (e-books included) to retailers at a specific wholesale price? If that's the case, why does this guy care what a particular retailer charges for the book? He's already gotten his cut and set the MSRP. If the retailer wants to sell the book for a different amount then that should be up to them.

Re: Why does he care?

Think of it like this: Let's pick a product at random...lamps. How much do you think a lamp is worth? No, don't go look it up, just guess. If you were to walk into a Home Depot/Lowes/etc. and get a generic lamp, how much would you expect to pay? Now, imagine that for the next few years every time you walk out of your house you see billboards and flyers advertising lamps for half of what your gut instinct told you a lamp cost. So, I would guess a generic lamp costs in the neighborhood of $25. If I am bombarded by $10 lamps, I begin to think that that is how much a "lamp" is worth. So if I go to Home Depot looking for lamps, and only see $25 ones, I think that they are a rip off. Lamps only cost $10! I've seen tons of $10 lamps.

So this dude isn't worried about not getting his cut on books he's selling today, he's worried that he won't be able to sell books for as much next year because the brainless sheeple consumers will have been trained to only "value" the "worth" of a book at Amazon's bargain basement prices.

Clearly there's just an abundance of problems with that train of thought, I'm not here to defend it, just explain it a bit. But the most glaring problem is that the publishers have used their monopoly position to jack the prices up way more than supply/demand would allow, and now that Amazon is providing competition, ye olde guard are fighting tooth and nail to keep their cushy margins.

I VALUE air a LOT. Infinitely so. I would pay everything I had for air on per minute basis if I had to, because what good is my nest egg if I suffocate from not paying the air bill?

Air, however, is in (nearly) infinite supply. Therefore air COSTS nothing. Therefore I do not have to pay to breathe. This doesn't mean air is worthless, or that I don't fully appreciate it. It means that the infinite supply vastly overwhelms the rather limited amount I need to pass through my lungs on a day to day basis.

VALUE has no bearing on COST, supply and demand do. I wish people would get it.

Re: Why put a price on the cover?

The guy, like most in the publishing business, is not willing to accept that commodity trading is a valid theory for pricing anything with a copyright attached and there is something about it (that smells). A lot of products like Nike, Coca Cola and LaCoste are all more expensive than their competitors since they have created an illusion about their product holding a higher value than it does. They will never want to compete on price and dont have to since they are good at keeping the illusion going.

Publishers want to keep that illusion on anything they put out. Combined with the quality illusion and their fake monopoly they are of the belief that commodity pricing is completely wrong.

Unfortunately for them, most users will see entertainment as somewhat interchangeable. Unless you give the customer an incredibly good other reason to buy, price will still be an important determining power in what product the user chooses and therefore the monopoly and "value-based" pricing is no longer gonna cut it.

This guy is living in a time long before the internet, when pricing was fixed at $ x for any new publication and the only determining factor for success was the number of books sold. Since prices are now free, that is obviously no longer the case and since some publishers (mostly self-) have aggressively pursued a competition on prices, even the golddust from good publishers is not worth as much as it used to. Today entertainment is cheap and a very competitive market. That goes against every rule in every economic model the big 3 in music, big 6 in movies and big 4 in book publishing (Wolters Kluwer, Thomson Reuters, Reed Elsevier and Pearson) have ever used! Therefore Amazon is a huge enemy, along with youtube and to a lesser degree iTunes. All of these work with prices no publisher in the old world understands since they are used to their standard pricing and then "quality" - in this case quality is mostly cover-art and title/summary - was what differentiated the number of sales.

Perspective on price versus value

This is my main point: Over HALF the posts at present stem from a 14-year-old attempting wit! Value of that thread to readers: ZERO. Price to each 14-year-olds: several minutes of straining to find a pun. -- Additional cost to web-site: incalculable, but includes derisive snorts from any visitor who might have been inclined to take you kids seriously before you provided reason not to.

Now to the minor. I stopped buying, ha, at the stupid title: "There Is No 'True' Price For Anything". -- Of course there is. Doesn't even need argued. -- Monetizing Mike is YET AGAIN attempting to over-generalize, but costs of physical objects and labor are fairly well defined over any reasonable period. -- It's only intangibles such as how much someone will pay for entertainments that are arbitrary.

But, perhaps that's because they don't understand basic economics, as evidenced by their dismissive concept that books are not "widgets."

Books are NOT widgets, Mike. As physical objects, they cost paper and ink: if lofty, they may require much time devoted, besides actual expenses.

But to Mike everything is a "widget" because he doesn't ever pay for it! His notions totally focus on grifting -- such as by pirate mega-site Megaupload -- where someone else pays all the costs, then Mike and his grifter pals use the value produced to skim money, diverting rewards away from the creators.

Re: Widgets

I don't think you understand what a 'widget' is. It's a traditional economic term for an arbitrary item that is produced and sold, follows supply and demand, etc. They are very much physical objects. In fact, the classic "pirate" products are clearly not widgets, because they don't obey classic economic principles.

In other words, take a course in basic economics. You'll be a much better person for it, and less likely to make an argument about someone else's use of a term you don't understand.

P.S. As a simple homework exercise, estimate the cost of the "physical object" of a book. Compare that to the publisher's desired sale price. Explain the relationship, or lack thereof.

Printing Costs, (Re: Widgets, Khaim, #29, Aug 6th, 2013 @ 7:25pm)

I did a bit of looking into the point, and my understanding is that the cost of printing a paperback book with a reasonably long print run is about forty to sixty cents. The lower price is "made in China," and probably reflects actual raw materials, paper and ink. The higher price is "made in the United States," and the additional twenty cents will mostly reflect set-up labor. Of course, printing presses, like any other industrial machine, are becoming more automated, more capable of switching jobs without human intervention, in short, becoming more like computer printers. The result is that the cost, per-book, of a short printing run converges down to the cost, per-book, of a long printing run.

Re: Re: Perspective on price versus value

No, ootb making any coherent expression is a disturbance in the force. Thankfully for him (not so much for us) his immune system sets him straight rather quickly, since copyright enforcement apologists are frequently allergic to logic. Anything that suggests rightsholders might not be in the right sends them into anaphylactic shock.

Re: Re: Perspective on price versus value

Its funny, OOTB was being praised the other day for actually having a point (and a coherent one at that). He seems to have reverted a few weeks, maybe they changed his meds again?
No, OotB making a coherent comment on here is one of those anomalies he loves to spout off about. ;)

Re: Perspective on price versus value

Re: Perspective on price versus value

Saying basic principles of economics apply is in absolutely no way the same thing as equating physical goods with non-physical. In the above he takes a situation that's got nothing at all to do with the distinction between tangible and intangible goods or with property and exclusive rights. Then attempts to shoe-horn in something he heard someone on the other side say once that he desperately hopes will sway others even while he continues to fail to understand what they meant when they said it. More cargo cult non-sense form the king of 'material covered by copyright is a common law property right.'

Someone doesn't seem to understand the difference between price and value -- nor do they understand price elasticity. But, perhaps that's because they don't understand basic economics, as evidenced by their dismissive concept that books are not "widgets."

Given the frequent use of "widgets" as a metasyntactic variable in economics, this sounds an awful lot more like willful ignorance of basic economics than mere non-understanding of it.

Basic publishing economics

Come on, Mike... you clearly don't understand economics as it works in the elite world of book publishing (though it is similar to the recording industry, etc).

The accepted method is this:
1. Determine your costs to publish. That's payment to the author (as minimal as possible), printing costs (or bandwidth), graft, waste, lobbyists... etc. Divide by number of books to get cost to publish one book.
2. Decide arbitrarily on the amount of profit you want to make for each book. Pick any number you want here. Price clearly doesn't affect demand for books, because books contain knowledge, which is priceless.
3. Decide how many books you'd like to sell.
4. Blame any failure to sell the number of books decided at step 3, for an amount as decided in step 2, on any of the following: Google, Amazon, piracy, the kids these days and their new-fangled video games, etc.
5. Hire more lobbyists to complain about the factors identified at step 4. Naturally, this increases the costs in step 1.
6. Ride this "success spiral" all the way to the end.

Re: Basic publishing economics

Amazon is something else. Their defense is that there is no true price to anything? Right. Not only is this a merit-less based defense but the statement is inaccurate.

First, the producers of the merchandise set the prices for the merchandise they produce. While most prices are not set in stone, some companies keep strict cost controls on the retail prices of their merchandise, such as Apple, Microsoft and the software industry.

Second, most merchandise is tagged as "Suggested Retail Price", which means that retailers can either sell at that price or lower.

There are some companies like Apple, Microsoft and Disney that take a hardnosed approach to the selling of their merchandise and most retailers are restricted from selling the merchandise they sell that is produced from those companies or they face very stiff repercussions.

For example, Apple will not allow retailers to sell its line of hardware (iPod, iPhone, iMac, iPads) below a certain price because they don't want their products to become devalued, which is why you never see any of Apple's products priced too low. The only time that Apple products are priced too move fast is when Apple is rolling out a new model for any particular item. New iPods and iPhones are generally marked down by as much as $100 when a new model is about to be released, otherwise, you never see more than $5 off the actual price of an iPod or iPhone.

Disney also maintains strict price controls on its products. Disney has a nasty habit of not allowing retailers like Best Buy and Target to sell Disney DVD's and/or Blu-rays below the $29.99 SRP and especially on their animated releases, they tend to retaliate against retailers by refusing to ship them any product. They are especially harsh when a retailer breaks a street date on their home videos.

Microsoft is the same way.

Most other companies who product merchandise are much more lenient on their merchandise pricing. But to say that there is no true pricing is disingenuous.

Re:

You missed the point. There isn't some magical "real" price for the product those companies produce that is independent of what the market willing pay for it. They can enforce the price they chose on retailers if they want but that price isn't a reflection of any core 'value' or 'nature' of what they sell. It's based on what the market is willing to pay, if the market isn't willing to pay the price the price changes or they lose sales. If it means they have to cut profit or costs they do that and if they can't cut costs then they go out of business.

A book is worth what the buyer is willing to pay, you can think that a books true price is £10,000, and maybe you can even force a retailer to have to sell it at that price but unless some one buys it then the price is totally meaningless.

Re:

I love how you brought up several examples of companies setting prices arbitrarily as if that means the prices they arbitrarily decide on are 'true.' They're not, they're just the price they want the product to be worth. At the quantities they produce there are apparently enough consumers that agree with them that they don't go bankrupt.

Pricing Power

One of the signs of late-stage capitalism is when pricing becomes unmoored from "an agreement between buyer and seller" and no longer has any relationship to supply and demand.

That's where we are now. The single most important thing corporations look for, in any sector, is "pricing power" which means they can fix prices. This replaces the normal relationship between buyer and seller and trivializes their transaction.

Re:

An industry known for price fixing is unhappy when people can pay a fair price rather than the extortionately high prices they'd prefer them to be fixed at? Shocking.

What's amazing is that these people seem to have deluded themselves into thinking everybody bought new books and at full retail price until Amazon and ebooks came along. It's hard to deal with people who are addressing a fantasy.

Amazon has a powerful tool in their hands. They could have an algorithm decide to increase or decrease the pricing of digital goods depending on how much it's selling hourly (or by the minute) to a maximum palatable price. If it's wildly demanded people will pay a bit more and this will serve also those who prefer to wait prices to drop before diving in.

Re: Re: Re: Re: publishers' defense

Re: publishers' defense

I understand why the publishers complain, but they can go pound sand. If they really want to fix prices, then they can simply stop selling to retailers who don't agree to a minimum price, or they can just increase the wholesale price.

Complaining that they have some kind of moral high ground on this issue makes them sound immoral. Trying to back the claim up with some kind of weirdo notion that the manufacturer or retailer sets the "true price" makes them sound like liars.